38 Oxley Road could be worth S$45 to S$60 million if redeveloped

The former home of Lee Kuan Yew at 38 Oxley Road has a lot area of 1,120.5 sqm, or 12,060 sq ft.

According to property consultants, the sale of the plot of land can fetch at least S$24 million at S$2,000 per sq ft (2015 price), which is the lower end for landed property prices in the area.

Because the area holds historical significance, the Government may issue a preservation order under the Preservation of Monuments Act which may cause the value of the land to flatline, or even decrease.

But let’s assume the Government doesn’t step in and the landowner has free rein on its development.

Under the Urban Redevelopment Authority (URA) 2014 Master Plan, 38 Oxley Road is in a residential precinct zoned “2-storey mixed landed”. This means that the redevelopment shall only be for the purpose of residence, with a maximum building height of 2-storeys excluding an optional attic.

There is a misconception that 38 Oxley Road could be worth close to S$100 million if it is redeveloped into a high-rise condominium unit but because of height restrictions, such development is not possible.

URA MASTER PLAN 2014

With the URA information at hand, the plot of land can be redeveloped into a mixed-landed cluster development, which is a cluster of stand-alone dwellings in the form of terraces, semi-detached houses, and bungalows (or a mixture of the three). Homes in a cluster development generally have a stronger capital appreciation.

With a land space of 12,060 sq ft, and in consideration of zoning restrictions, the plot can be redeveloped into a cluster of 3 units.

It was what the neighbours at 36 Oxley Road did.

36 Oxley Road

With a land space of 11,000 sq ft, the cluster development on 36 has 3 units that come with a lift and a private pool. They have 5 bedrooms and 5 bathrooms.

According to data on Property Guru, each unit can fetch between S$18,000 to S$20,000 in rental yield or an approximate gross total of S$60,000 per month.

There are multiple ways to profit from this:

Option #1: While the land on 38 Oxley Road is freehold, the landowner may lease the lot to third-party developers on a 99-year leasehold. The terms can be renewable, which means the developers can pay (top-up) for additional years over and above the 99-year agreement.

Option #2: The landowner can develop the land and construct the houses himself, after which, he can either rent (at S$60,000 per month for the entire building) or sell to home buyers direct.

Optionally, the landowner can take a hybrid approach from the 2 options above. Both options still allow for the landowner to maintain ownership of the plot.

If the landowner takes option 2, he can resell the land at a higher premium since the lot has already been redeveloped.

Inflation, city upgrading, and changes to surrounding buildings in the vicinity can also lead to an increase in the land value.

So how much profit can a landowner at 38 Oxley Road possibly make?

According to a DBS report, the net margins for developers in 2014 were at 11.8%.

If the landowner lease the lot to third-party developers who will redevelop it into a cluster housing type, and we take a very conservative guess on a net margin of 10% plus inflation of 0.8% year-on-year (constant), the land at 38 Oxley Road could be worth upwards of S$30 million in 20 years time.

Assuming that the landowner only sells the land on the 20th year, and had rent out the building at S$60,000 per month (no change, because landlord very nice), after accounting for inflation at 0.8% year-on-year (constant), the total rent yield would be approximately S$15 million.

Add them together: S$45 million (+/-).

But of course, this is a very simplified calculation with high variance. In fact, the range could be between S$45 to $60 million by the year 2027.